Deposit details: what you must know before buying residential property in New Zealand

Buying a home in New Zealand is an exciting milestone, but it’s important to be prepared and well-informed before signing any agreement to purchase, to avoid any unexpected issues. Whether you are a first-home buyer or moving up the property ladder, here are our key tips to keep in mind before signing a sale and purchase agreement:

Understanding the Term “Deposit”

In real estate transactions, the word “deposit” can have different meanings depending on the context. For example, in a sale and purchase agreement, it refers to the upfront payment made by a purchaser either on signing of the agreement, or when an agreement is made unconditional. In lending terms, your bank refers to the deposit as your overall contribution or equity in the property. Confusing the real estate and lending contexts, can lead to miscommunication and sometimes financial shortfalls.

Using KiwiSaver? Apply early

It is common for first-home buyers to use their KiwiSaver savings as part of, or the entire deposit on the purchase of a home. While this can be a helpful financial boost, there are strict conditions and timeframes involved. You must apply through your KiwiSaver provider in advance, and approval can take at least two weeks. Additionally, funds are paid directly to your solicitor, not to you, and can only be used for the settlement or deposit. You should also let the agent and your solicitor know that you will be using KiwiSaver savings to pay your deposit, as a special clause will needed to be inserted into the further terms of the agreement.

You might not be able to use the deposit from your sale straight away

If you are relying on the sale of your current home to fund the purchase of a new one, be aware that the deposit you receive from your buyer will not automatically be available for your next purchase. The funds are typically held in the agent’s trust account (when the deposit does not include KiwiSaver savings) and cannot be released for at least ten working days, unless both parties agree to an early release or other arrangements are made. You should also be aware that the default position of the agent will be to take their commission out of the deposit before releasing the funds to your solicitor. These details can cause delay and can affect your ability to pay the deposit on your new home, so plan ahead.

What if a deposit is not paid on time?

If a purchaser doesn’t pay the deposit when it’s due, it’s not just a minor hiccup, it is a breach of contract. Many people assume the agreement simply falls over, but that’s not the case. The vendor may have the right to cancel the agreement, keep any part of the deposit already paid, and even claim damages or pursue the buyer for specific performance (forcing them to complete the purchase). It’s a serious situation, and both parties should understand the consequences before signing.

Understanding these deposit details can help ensure a smoother, more informed buying process. If you’re unsure about anything, it’s always best to get legal advice before signing on the dotted line.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.